The General Court decides on the geo-blocking of videogames by Steam to ensure the effectiveness of exclusive licenses between publishers and distributors.
On the late 27th September the General Court issued an interesting Judgement weighing the inherent territorial nature of Intellectual Property and the principle of free competition recognized in article 101 TFEU.
The case was between the European Commission and Valve Corporation, the video game industry company that runs the Steam platform, which anyone who has played games on a PC will immediately recognise. Video game publishers (and holders of their respective intellectual property rights) normally enter into distribution agreements with Steam to enable users to purchase their games through the platform, with Steam providing publishers with technology of its own so they can develop their games, as well as various services and technical solutions.
Video games available on Steam can be purchased either directly from the platform, or through third-party distributors, who offer a download code, which when activated on Steam allows you to access the game. These codes are known as “Steam keys“. Among the services offered by Steam, a territorial blocking function, or geo-blocking, is allowed, which works in two ways. On the one hand, there are ‘activation restrictions’, which limit the activation of the video game to a single territory, but once activated in the authorised territory, the game can be played anywhere. On the other hand, there are ‘execution restrictions’, which not only limit the territory where the game can be activated, but also limit the ability to play the game to that territory of activation.
This led the Commission to open an investigation ex officio, which ended with a decision on 20 January 2021, concluding that the five video game publishers under investigation, together with Valve, infringed Article 101 TFEU and Article 53 of the Agreement on the European Economic Area. This decision was appealed by Valve and it is on this appeal that the General Court decides.
In the appeal, Valve argues that the Commission erred in failing to properly assess the novelty of the case, in that it would be the first case involving the offering by third parties of technological measures within the meaning of Article 6 of Directive 2001/29/EC on Information Society Rights. It considered that it did not operate as a reseller or distributor of video game publishers on Steam, but only supplied digital services, so that the existing case-law on parallel imports would not be applicable.
However, the General Court considers that the offer of Steam-keys with territorial restrictions did indeed have the objective of limiting the parallel importation of video games by preventing passive sales from countries outside the protected territory. In that regard, it is irrelevant whether or not the distribution or licensing agreements were exclusive in nature, but the effect of the agreements in preventing passive sales and partitioning the domestic market must be taken into account.
Next, the General Court rules on the arguments put forward by Valve in relation to copyright. First, it points out that the mere fact that an agreement relates to copyright does not preclude the application of Article 101 TFEU, nor does the question of the exhaustion of copyright, being irrelevant whether sales on Steam affect the right of distribution or the right of public communication. In turn, the Court establishes that the fact that technological measures may be adopted does not mean that they cannot fall within the scope of application of art. 101 TFEU when they are the object, means or consequence of conduct that infringes this article.
On the other hand, the Commission did not question the possibility for video game publishers to grant licences to distributors by limiting their territorial extension to certain countries, but the conduct at issue concerns the additional measures that were taken by Valve and the publishers to ensure compliance with those territorial limitations by preventing any sales outside the territories covered by the licences.
The General Court concludes that the Steam-keys territorial blocking measures were not intended to protect the publishers’ copyright, but to eliminate parallel imports in order to protect the sale of video games and the higher royalties that could be collected by both the publishers and Valve in the protected territories with higher sales prices. And in this line, the Court recalls that copyright holders have a right to commercially exploit the work or to market it through licences in return for remuneration, but that this does not guarantee a right to demand the highest possible remuneration or to engage in practices that may lead to artificial price differences between the various partitioned national markets.
As we can see, the Court is by no means stranger to issues intrinsic to copyright such as the exclusive or non-exclusive nature of licences, the exhaustion of the distribution right, technological protection measures and, in particular, their territorial nature, never categorising them as anti-competitive elements per se. However, the main priority is always and clearly to ensure the proper functioning of the market and to avoid restrictions to competition in the internal market. Thus, the General Court dismisses Valve’s appeal, confirming the fine imposed by the Commission of up to 1,6 million euros on Steam’s owners.
Jorge Díaz Rodríguez
Abril Abogados
